"It is a federal tax - it needs to be driven at the federal level," he said.

"They need to come to the states and say 'here are the issues'.

"But just to simply reduce expenditure or reduce grants to the states in order to force an outcome is not something that I think is conducive to those good relationships."

Mr Nicholls says Queensland has already made difficult financial choices and do not have much room left to absorb the federal budget shocks.

"We do not have the capacity to absorb enormous shocks and that's why - while we have some time in relation into these changes taking effect, particularly in health - we will still need to take up the cudgels with Canberra to explain to them the position we face here," he said.

"The fact that activity funding is a growth area for us and the CPI will not meet the needs for Queensland's anticipated growth."

Mr Nicholls says he is concerned that changes to public hospital funding formulas will leave the state worse off.

"The changes aren't immediate - there is some time to work them through," he said.

"That may leave a shortfall that Queensland has to pick up - we'll be taking up the fight to Canberra."